Creative Cloud and Adobe Marketing Cloud
Adoption Accelerates in Q2
Adobe (Nasdaq:ADBE) today reported financial results for its
second quarter of fiscal year 2014 ended May 30, 2014.
Second Quarter Financial Highlights
- Adobe achieved revenue of $1.07
billion, above the high end of its targeted range of $1.00 billion
to $1.05 billion.
- Adobe exited Q2 with 2 million 308
thousand paid Creative Cloud subscriptions, an increase of 464
thousand when compared to the number of subscriptions as of the end
of Q1 fiscal year 2014.
- Creative Annualized Recurring Revenue
(“ARR”) grew to $1.20 billion, and total Digital Media ARR grew to
$1.38 billion.
- Adobe Marketing Cloud quarterly revenue
was $283 million, representing 23 percent year-over-year
growth.
- Diluted earnings per share were $0.17
on a GAAP-basis, and $0.37 on a non-GAAP basis.
- Cash flow from operations was $368
million and deferred revenue grew to a record $929 million.
- 53 percent of Adobe’s Q2 revenue was
from recurring sources such as Creative Cloud and Adobe Marketing
Cloud.
- The company repurchased approximately
2.6 million shares during the quarter, returning approximately $166
million of cash to stockholders.
A reconciliation between GAAP and non-GAAP results is provided
at the end of this press release and on Adobe’s website.
Executive Quotes
“Adobe’s first-half upside was driven by accelerated adoption of
Creative Cloud and Adobe Marketing Cloud,” said Shantanu Narayen,
president and chief executive officer, Adobe. “We’re excited about
our upcoming product pipeline and expect a strong second half of
the year.”
“Our earnings performance in Q2 reflects the financial leverage
we have in our model,” said Mark Garrett, executive vice president
and chief financial officer, Adobe. “With Adobe’s Creative Cloud
transformation behind us, our focus moving forward is to drive
strong revenue and earnings growth with our market-leading cloud
offerings.”
Adobe to Webcast Earnings Conference Call
Adobe will webcast its second quarter fiscal year 2014 earnings
conference call today at 2:00 p.m. Pacific Time from its investor
relations website: www.adobe.com/ADBE. Earnings documents,
including Adobe management’s prepared conference call remarks with
slides, financial targets and an investor datasheet are posted to
Adobe’s investor relations website in advance of the conference
call for reference. A reconciliation between GAAP and non-GAAP
earnings results and financial targets is also provided on the
website.
Forward-Looking Statements Disclosure
This press release contains forward-looking statements,
including those related to future product releases, business
momentum, the strength of our cloud business and growth of our
revenue and earnings, all of which involve risks and uncertainties
that could cause actual results to differ materially. Factors that
might cause or contribute to such differences include, but are not
limited to: failure to develop, market and distribute products and
services that meet customer requirements, introduction of new
products and business models by competitors, failure to
successfully manage transitions to new business models and markets,
fluctuations in subscription renewal rates, risks associated with
cyber-attacks and information security, uncertainty in economic
conditions and the financial markets, and failure to realize the
anticipated benefits of past or future acquisitions.
For a discussion of these and other risks and uncertainties,
please refer to Adobe’s Annual Report on Form 10-K for our fiscal
year 2013 ended Nov. 29, 2013 and Adobe’s Quarterly Reports on Form
10-Q issued in fiscal year 2014.
The financial information set forth in this press release
reflects estimates based on information available at this time.
These amounts could differ from actual reported amounts stated in
Adobe’s Quarterly Report on Form 10-Q for our quarter ended May 30,
2014, which Adobe expects to file in June 2014.
Adobe assumes no obligation to, and does not currently intend
to, update these forward-looking statements.
About Adobe Systems Incorporated
Adobe is changing the world through digital experiences. For
more information, visit www.adobe.com.
© 2014 Adobe Systems Incorporated. All rights reserved. Adobe,
the Adobe logo, Creative Cloud and Adobe Marketing Cloud are either
registered trademarks or trademarks of Adobe Systems Incorporated
in the United States and/or other countries. All other trademarks
are the property of their respective owners.
Condensed Consolidated Statements of
Income
(In thousands, except per share data;
unaudited)
Three Months Ended Six Months
Ended May 30, 2014 May 31,
2013 May 30, 2014 May 31,
2013 Revenue: Products $ 479,247 $ 644,899 $ 950,701 $
1,320,688 Subscription 476,694 254,521 900,257 478,787 Services and
support 112,267 111,129 217,370 218,947
Total revenue 1,068,208 1,010,549 2,068,328
2,018,422 Cost of revenue: Products 24,499 26,805
51,997 78,787 Subscription 84,147 66,527 160,879 129,107 Services
and support 46,258 41,949 90,537 84,071
Total cost of revenue 154,904 135,281 303,413
291,965 Gross profit 913,304 875,268 1,764,915
1,726,457 Operating expenses: Research and development
209,092 203,097 418,617 412,735 Sales and marketing 426,830 402,208
836,971 800,241 General and administrative 129,138 120,870 268,122
253,723 Restructuring and other charges (366 ) 24,992 297 24,994
Amortization of purchased intangibles 13,352 12,792
26,904 25,231 Total operating expenses 778,046
763,959 1,550,911 1,516,924 Operating
income 135,258 111,309 214,004 209,533 Non-operating income
(expense): Interest and other income (expense), net 2,563 1,268
5,708 2,514 Interest expense (17,103 ) (17,205 ) (33,693 ) (34,039
) Investment gains (losses), net 553 (4,245 ) 144
(3,397 ) Total non-operating income (expense), net (13,987 )
(20,182 ) (27,841 ) (34,922 ) Income before income taxes 121,271
91,127 186,163 174,611 Provision for income taxes 32,744
14,581 50,590 32,948 Net income $ 88,527
$ 76,546 $ 135,573 $ 141,663 Basic net
income per share $ 0.18 $ 0.15 $ 0.27 $ 0.28
Shares used to compute basic net income per share 497,931
503,384 497,439 500,996 Diluted net
income per share $ 0.17 $ 0.15 $ 0.27 $ 0.28
Shares used to compute diluted net income per share 506,687
512,446 508,227 511,535
Condensed Consolidated Balance
Sheets
(In thousands, except par value;
unaudited)
May 30, 2014 November 29,
2013 ASSETS Current assets: Cash and cash equivalents
$ 817,020 $ 834,556 Short-term investments 2,513,191 2,339,196
Trade receivables, net of allowances for doubtful accounts of
$7,929 and $10,228, respectively 531,557 599,820 Deferred income
taxes 72,489 102,247 Prepaid expenses and other current assets
180,086 170,110 Total current assets 4,114,343
4,045,929 Property and equipment, net 642,450 659,774
Goodwill 4,773,798 4,771,981 Purchased and other intangibles, net
532,317 605,254 Investment in lease receivable 207,239 207,239
Other assets 102,052 90,121 Total assets $ 10,372,199
$ 10,380,298 LIABILITIES AND STOCKHOLDERS'
EQUITY Current liabilities: Trade payables $ 54,858 $ 62,096
Accrued expenses 656,940 656,939 Debt and capital lease obligations
609,742 14,676 Accrued restructuring 3,627 6,171 Income taxes
payable 13,696 10,222 Deferred revenue 879,109 775,544
Total current liabilities 2,217,972 1,525,648
Long-term liabilities: Debt and capital lease obligations 896,551
1,499,297 Deferred revenue 49,495 53,268 Accrued restructuring
6,099 7,717 Income taxes payable 139,870 132,545 Deferred income
taxes 351,612 375,634 Other liabilities 73,712 61,555
Total liabilities 3,735,311 3,655,664 Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized — —
Common stock, $0.0001 par value 61 61 Additional paid-in-capital
3,562,682 3,392,696 Retained earnings 6,806,104 6,928,964
Accumulated other comprehensive income 46,642 46,103 Treasury
stock, at cost (103,587 and 104,573 shares, respectively), net of
reissuances (3,778,601 ) (3,643,190 ) Total stockholders' equity
6,636,888 6,724,634 Total liabilities and
stockholders' equity $ 10,372,199 $ 10,380,298
Condensed Consolidated Statements of
Cash Flows
(In thousands; unaudited)
Three Months Ended May 30, 2014
May 31, 2013 Cash flows from operating
activities: Net income $ 88,527 $ 76,546 Adjustments to reconcile
net income to net cash provided by operating activities:
Depreciation, amortization and accretion 77,653 80,950 Stock-based
compensation expense 83,005 73,528 Asset impairment losses — 23,838
Unrealized investment (gains) losses, net (352 ) 4,312 Changes in
deferred revenue 47,517 (8,770 ) Changes in other operating assets
and liabilities 71,186 48,744 Net cash provided by
operating activities 367,536 299,148 Cash
flows from investing activities: Purchases, sales and maturities of
short-term investments, net (117,967 ) (275,455 ) Purchases of
property and equipment (27,198 ) (46,249 ) Purchases and sales of
long-term investments, intangibles and other assets, net (2,767 )
(12,735 ) Net cash used for investing activities (147,932 )
(334,439 ) Cash flows from financing activities: Purchases
of treasury stock (150,000 ) (200,000 ) Proceeds from reissuance of
treasury stock, net 12,824 184,655 Repayment of debt and capital
lease obligations (3,626 ) (7,297 ) Excess tax benefits from
stock-based compensation 4,875 — Net cash used for
financing activities (135,927 ) (22,642 ) Effect of exchange rate
changes on cash and cash equivalents (573 ) (2,039 ) Net increase
(decrease) in cash and cash equivalents 83,104 (59,972 ) Cash and
cash equivalents at beginning of period 733,916 1,306,382
Cash and cash equivalents at end of period $ 817,020
$ 1,246,410
Non-GAAP Results
(In thousands, except per share data)
The following tables show Adobe's GAAP
results reconciled to non-GAAP results included in this
release.
Three Months Ended May 30, 2014
May 31, 2013 February 28,
2014 Operating income: GAAP operating income $
135,258 $ 111,309 $ 78,746 Stock-based and deferred compensation
expense 83,600 79,624 83,549 Restructuring and other charges (366 )
24,992 663 Amortization of purchased intangibles 31,835 31,359
32,054 Loss contingency — — 10,000 Non-GAAP
operating income $ 250,327 $ 247,284 $ 205,012
Net income: GAAP net income $ 88,527 $ 76,546 $
47,046 Stock-based and deferred compensation expense 83,600 79,624
83,549 Restructuring and other charges (366 ) 24,992 663
Amortization of purchased intangibles 31,835 31,359 32,054
Investment (gains) losses (553 ) 4,245 409 Loss contingency — —
10,000 Income tax adjustments (16,771 ) (33,915 ) (22,383 )
Non-GAAP net income $ 186,272 $ 182,851 $ 151,338
Diluted net income per share: GAAP diluted net
income per share $ 0.17 $ 0.15 $ 0.09 Stock-based and deferred
compensation expense 0.16 0.16 0.16 Restructuring and other charges
— 0.05 — Amortization of purchased intangibles 0.06 0.06 0.06
Investment (gains) losses — 0.01 — Loss contingency — — 0.02 Income
tax adjustments (0.02 ) (0.07 ) (0.03 ) Non-GAAP diluted net income
per share $ 0.37 $ 0.36 $ 0.30 Shares
used in computing diluted net income per share 506,687 512,446
508,340
Three Months
Ended
May 30, 2014 Effective income tax rate: GAAP
effective income tax rate 27.0 % Stock-based and deferred
compensation expense (3.2 ) Amortization of purchased intangibles
(1.3 ) Income tax adjustments (1.5 ) Non-GAAP effective income tax
rate 21.0 %
Use of Non-GAAP Financial Information
Adobe continues to provide all information required in
accordance with GAAP, but believes evaluating its ongoing operating
results may not be as useful if an investor is limited to reviewing
only GAAP financial measures. Adobe uses non-GAAP financial
information to evaluate its ongoing operations and for internal
planning and forecasting purposes. Adobe's management does not
itself, nor does it suggest that investors should, consider such
non-GAAP financial measures in isolation from, or as a substitute
for, financial information prepared in accordance with GAAP. Adobe
presents such non-GAAP financial measures in reporting its
financial results to provide investors with an additional tool to
evaluate Adobe's operating results. Adobe believes these non-GAAP
financial measures are useful because they allow for greater
transparency with respect to key metrics used by management in its
financial and operational decision-making. This allows
institutional investors, the analyst community and others to better
understand and evaluate our operating results and future prospects
in the same manner as management.
Adobe's management believes it is useful for itself and
investors to review, as applicable, both GAAP information that may
include items such as stock-based and deferred compensation
expenses, restructuring and other charges, amortization of
purchased intangibles and certain activity in connection with
technology license arrangements, investment gains and losses, loss
contingencies and the related tax impact of all of these items,
income tax adjustments, the income tax effect of the non-GAAP
pre-tax adjustments from the provision for income taxes, and the
non-GAAP measures that exclude such information in order to assess
the performance of Adobe's business and for planning and
forecasting in subsequent periods. Whenever Adobe uses such a
non-GAAP financial measure, it provides a reconciliation of the
non-GAAP financial measure to the most closely applicable GAAP
financial measure. Investors are encouraged to review the related
GAAP financial measures and the reconciliation of these non-GAAP
financial measures to their most directly comparable GAAP financial
measure as detailed above.
Adobe Systems IncorporatedMike Saviage, 408-536-4416 (Investor
Relations)ir@adobe.comJodi Sorensen, 408-536-2084 (Public
Relations)jsorensen@adobe.com
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